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tv   Moyers Company  PBS  January 27, 2012 11:00pm-12:00am PST

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this week on "moyers & company" -- >> if you had asked me under oath, what probability i would have given that you would have gotten the whole group of wall street precipitants to get it wrong, so to speak, i would have said zero. and -- >> if you were to rank big mistakes in the history of this country that was one of the bigger ones, because it has set back this country in a very significant way and caused so much heartbreak and heartache, and a near total collapse of the american economy. funding is provided by carnegie corporation of new york, celebrating 100 years of
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philanthropy and committed to doing real and permanent good in the world. the coleberg foundation, independent production fund with support from the partridge foundation, a john and paulie guff charitable fund. the clements foundation, partner foundation, dedicated to heightening awareness of critical issues, the bernard and audrey rapaport foundation, committed to building a more just, with verdent and peaceful world. nor information at the jessie and betty finck foundation, barbara g. fleischman and by our sole corporate sponsor, with mutual of america, designing customized individual and group retirement product. that's why we're your retirement company. welcome to our third
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episode about the powerful players in high places who rewrote the rules of american politics and the economy. you can read all about it in this book: "winner-take-all politics: how washington made the rich richer and turned its back on the middle class." if you missed the first two programs, you can see them on our new website, the first is with "winner take all" authors jacob hacker and paul pierson. the second with david stockman and gretchen morgenson on "crony capitalism." in this edition, we'll look at a seminal moment when wall street and washington stacked the deck against the rest of us. remember, this is the political equivalent of a crime story, a mystery. how is it that our economy stopped working for the broad majority of americans? how did our political and financial class shift the benefits of the economy to the very top, while saddling us with greater debt and tearing new holes in the safety net?
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in other words, how did politics create a winner-take-all economy? well, it didn't happen by accident. this was an inside job, politically engineered by wall street and washington working hand-in-hand, sticky fingers with sticky fingers, to turn the legend of robin hood on its head -- giving to the rich and taking from everybody else. it's all on the record. the richest of the rich was citigroup, at one time the world's largest financial institution. when the 2008 meltdown hit, the bank cut more than 50,000 jobs, and taxpayers shelled out more than $45 billion to save it. so how are citigroup executives doing these days? nicely, thank you. last year, its ceo, vikram pandit, took home almost $2 million in salary, almost $4 million in deferred stock. stock options that may be worth as much as $6.5 million, and a
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$16 million retention bonus. there's no clearer example of the collusion between government and finance than the deal that created citigroup in the first place. at a standing room-only press conference in april 1998, sandy weill, head of the investment bank and insurance company travelers group, and john reed, the longtime ceo of the commercial bank citicorp, announced a gigantic, $140 billion merger. just one problem -- the merger flew in the face of this law. you're looking at the banking act of 1933, also known as glass-steagall. glass-steagal was enacted during the great depression to prevent investment banks from ever again gambling with people's life savings, as they had before the market crash of 1929. glass-steagall protected us against a repeat of that calamity for 70 years.
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it's a little bitty thing -- just 37 pages -- for the big job it did for us. glass-steagall was still in force when travelers and citicorp went ahead with their merger. what made them think they could get away with it? well, they had friends in high places. friends who helped them exploit a loophole giving them two years to get rid of glass-steagall. among those friends, the laissez-faire, libertarian chairman of the federal reserve, alan greenspan, the right-wing republican senator from texas, phil gramm, who once called wall street "a holy place," and later would become a high priest at the global banking giant, ubs, and the democratic secretary of the treasury, robert rubin, former co-chair of goldman sachs and tireless advocate of taking down glass-steagall. in the weeks before its repeal rubin left government to join,
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are you ready for this, citigroup's board, the very financial giant made possible by glass-steagall's elimination. and so it was -- the fix was in, the path was cleared all the way to the top. >> sandy called his friend the president last night and invited me to join in on the conversation and we had a good talk. so the president was in fact told last evening about what was going to happen. >> you got that, i'm sure. wall street was telling the president of the united states what was going to happen. within two years, glass-steagall was deader than a doornail. with the stroke of a pen, president, bill clinton, signed legislation that eliminated its protections and gave citigroup the green light. john reed retired from citigroup a year later, after losing out in a power struggle with sandy weill. he went on to serve as interim ceo of the new york stock exchange and now chairs the board at m.i.t.
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as wall street collapsed in 2008, reed watched in disbelief, and began to have second thoughts about it all, including the wisdom of repealing glass-steagall. you were a key player when traveler's and citicorp merged. how big was this to you at that time? >> it was not that big. you know, it clearly was an important transaction from our point of view. and it was hopefully -- it turned incorrectly -- but it was hopefully going to transform sort of the opportunity space in which the bank operated from a business point of view. our customers were saying, "hey, we don't want to come to you for loans. they're too expensive. we can sell our paper into the capital markets more cheaply. we can finance ourselves more cheaply." >> your customers being? >> being large companies. and these customers were saying, "we want you to intermediate the
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capital markets." now that is the traditional business of what we then called investment banks. and glass-steagall had separated out those who were principally engaged, which is a very important phrase, in the capital markets which were then the investment banks and the brokers and so forth from the commercial banks. >> glass-steagall was the act passed during the new deal back in the 1930s that was designed to put a firewall between the investment firm and the traditional banking firm. so you couldn't take my deposits or grandma's deposit and take risk with it, right? >> well, that and even more importantly, or equally importantly, since the fdic came into existence at approximately a similar time where the government was guaranteeing deposits so that people didn't lose if a bank got into trouble -- people didn't lose their lifetime savings.
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my father lost his lifetime savings during the depression. and it was quite a family event. and if he had ever known i worked in a bank he would have died yet again. but not only did they want to keep the banks from the business for reasons of not risking the money. they didn't want them to use the guarantee that the government provided for those deposits to leverage their position. because, you know, if you have a deposit base that's guaranteed by the government, it sure puts you at a great advantage in terms of going into the market and playing around. >> the government's going to pick up your losses, right? >> yeah. and you don't have a funding problem. >> that was what the fdi -- >> because you have guaranteed deposits. >> that was federal deposit insurance corporation was designed to protect my -- >> that's right. >> -- my deposit in your bank. >> that's right. and they wanted to make sure that it was used for that purpose and not as a basis for doing other things in the capital markets. >> so this is why the financial
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community wanted to repeal or eliminate the glass-steagall act. they wanted to get rid of this firewall? >> yes. and the reason was our customers increasingly said, "look, we can't use you banks for finance because there are opportunities in the capital market that are much cheaper. and if you can't help us go there then we're going to go to the investment banks. and so all of a sudden we saw our customers migrating out towards the investment banking community to do the business that we would have preferred to have done. so from citibank's point of view, our point of view, this merger gave us access to the capital markets. and so we were in a position to offer our customers the services that they wanted. >> they plan to attract new customers with one-stop shopping -- stocks, bonds property and life insurance and banking. federal regulators must approve the deal. most banks are now prohibited from selling stocks and insurance. >> when sandy approached me on
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the merger i knew that it was right on the forefront of the legal thing. but there's a technicality citibank could not have bought travelers because that was out and out illegal. travelers, on the other hand, could buy citi because they were buying a bank and they had two years in which to correct for the deviation from the law. and what we basically were told was, "if you all want to do this within the two years we'll get the law changed." >> because if in that two-year period, as i understand it, glass-steagall had not been changed, this merger, which had already taken place, would have been illegal. >> we would have to take it apart. and we took steps to make sure that was possible. >> but you got the blessing in this two-year period of president clinton, of the fed, of -- >> we had that blessing prior to. in other words -- >> what? they assured you that this -- >> yes.
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>> -- glass-steagall would be -- >> yes. in other words, i went with sandy to call on chairman greenspan. we told him we were contemplating this merger. but that it would required that the fed would be prepared to grant us permission. and we were assured that they would. we went and saw the chairman of the house banking committee, the chairman of the senate banking committee. and we said we're talking about this merger but it could not take place if we were not assured that it would be approved at the congressional level. we talked to the secretary of the treasury, i don't recall -- >> robert rubin? he was the secretary of the treasury at the time. >> yeah, we would've spoken to him, i'm sure. and had bob rubin said, "no, the treasury feels this is wrong," we would've been careful. because obviously, the treasury recommends to the president on an issue of this sort. and there was no argument. no one said, "we'll have to think about it." and so a consensus built up. i don't think it started in the
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fed. i would guess it started in the industry, it certainly got into the congress. >> by eliminating the glass-steagall restrictions we free our financial services industry to maintain its place as the world leader. >> we dominate the world financial market, and we've done it with one hand tied behind us because we have the greatest economic system in the history of the world. but we can untie that hand that we have had tied behind us. and we do it in this bill by repealing glass-steagall. >> lawmakers inevitably learn as lobbyists tell them things. it's sort of like a doctor being sold new medicines, they can't stay on the forefront of the pharmaceutical technology, they rely on being educated to some extent. >> this bill is vital for the future of our country. if we didn't pass this bill, we
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could find london or frankfurt or years down the road, shanghai, becoming the financial capital of the world. >> there was no one in the press who said, "oh, no, that's wrong." there was a celebration. and the industry, including myself, didn't recognize the danger. >> the danger being? >> that we could make a mistake that would then be transmitted in a much more drastic way throughout the system. >> which happened later. >> which happened, yeah. i mean if you had asked me under oath, what probability i would have given that you would have gotten the whole group of wall street participants to get it wrong so to speak, i would have said zero. >> we are with this piece of legislation moving towards greater risk. we are almost certainly moving towards substantial new concentration and mergers in the financial services industry, that is almost certainly not in the interest of consumers, and we are deliberately -- >> a handful of politicians who tried to sound the alarm.
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among them was senator byron dorgan of north dakota. >> what does it mean if we have all this concentration and merger activity? well, the bigger they are, the less likely this government can allow them to fail. >> were you aware of the few senators who raised real concerns about removing glass-steagall, about what would happen? >> no one that i'm aware of it saw it clearly. you point out to some senators and congressmen who did, but somehow we described them as being peripheral. and i simply said, "they're wrong." turned out they weren't. >> i think we will in ten years' time look back and say, "we should not have done that, because we forgot the lessons of the past." >> senator dorgan predicted disaster. disaster's what we got in 2008. >> yeah, no, they -- and disaster-- it wasn't solely glass-steagall, because much of the disaster of 2008 would've
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occurred independently of it, i believe. but certainly the propagation of the problem throughout the economy was greatly aided by the absence of glass-steagall. you know, we would've hit the iceberg anyway, i believe. but the ship would've had compartments which would've been flooded. and question is, would the whole ship have gone down? because had it been compartmentalized, we still would've had a disaster. it still would've involved very important institutions. but it might not have spread throughout the whole ship. that's the real issue. >> what do you think they saw that wall street didn't see? >> they simply didn't participate in the exuberance. but i do think that, you know, this setting up the deck of cards so that we could produce what we currently are trying to withdraw from. turns out to have been something
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that the word disaster is maybe not strong enough. >> well, some people now say the deck was stacked, that the game was rigged against the broad interest of the public. >> no, i definitely agree. and, i mean, the proof is there. it doesn't take a genius to figure out that we'd been wrong. >> but it takes somebody principled to admit that, "i was wrong." >> no, no. it's not something you'd like to end your career with. that is for sure. no, look. we got carried away. it wasn't any small group, it was a consensus that reached the press, it reached the political world. it certainly had reached the intellectual world. i'm now, as you know, at mit, and i say to some of my academic friends that the intellectual underpinnings of this was created at mit and places like that, i mean -- >> with the technology of the computers? >> well, no. it's the mathematics.
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it's all of this mathematics of finance and the presumption in much of this mathematics that you can capture risk by looking at historical volatility and so forth and so on. as soon as you say something appears not to be risky, you get an over investment in it, because the capital requirements are less. and then if something does go wrong, the hurt is all the more because you don't have the capital to take the risks. and you know, if somebody says, "walk across that sheet of ice, there's no danger whatsoever you're going to fall in," you know, you're fine. as long as you don't fall in. >> are you suggesting that the chairman of the board of mit's suggesting -- that human intelligence no longer runs our financial system? >> well, it's a little wisdom balance that judgment wouldn't hurt.
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>> so how, when you look back on it, how did so many people, including yourself, get it wrong? >> we were carried away by the enthusiasm. and like everything else, you know, once you start you probably go a little further than you should have. we started out lending mortgages to customers and putting them on our balance sheet. then in the '90s, when the mortgage-backed securities came in to being, we found that you couldn't economically do that, so we would package our mortgages and we'd sell them to a wall street firm, who would then pass them on to their customers. pretty soon, we were in the business ourselves, after the merger. and so all of a sudden, these mortgage-backed securities could be distributed throughout our own company. and pretty soon people said, "well, why only package the securities that your customers create? why don't we go out to mortgage brokers and start buying some of their securities? and we'll package those and we'll sell them." and then, i was retired at the
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time, but you read in the press and you may even have seen on television, no doc and low doc. now, no doc/low doc means no documentation or low documentation. low meaning less than the regulators would require of you. >> you didn't ask the person, the homeowner who was buying the house, "show me proof of your wages. show me proof of your savings." >> that's right. but can you imagine that you publicly acknowledge that you were creating products and selling them into the market that had no documentation or less than normal required documentation? and this was -- it's sort of like taking a product and putting a skull and crossbones on it and saying, "this might be poison," and putting it on the supermarket shelves. >> you know, i hear you talk. and i think, "well, human beings certainly can go insane. so can systems, right?" >> yeah, and so can groups of human beings. in the '90s, the investors took
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over. and they basically said to management, "we don't care what you do. we don't care how many private jets, houses, golf courses, swimming pools, whatever you have, as long as you keep the share price going up. if share price goes down, we're going to get rid of you even if you're good." and managers started being scared of their stockholders and this idea of shareholder value came into being. i never heard the word "shareholder value" until the '90s. it was customers, customers, customers. how are the customers? are we doing well? are we losing place with the customers? but all of a sudden -- and sandy was a total proponent. >> sandy weill? >> sandy weill. i mean, his whole life was to accumulate money. and he said, "john, we could be so rich." being rich never crossed my mind as an objective value. i almost was embarrassed that somebody would say out loud.
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it might be happening but you wouldn't want to say it. but you know, the biggest bonus i had ever received when i was at citi was $3 million. the first year i worked with sandy it was 15. i said to the board, "i'm the same guy doing the same job, same company. there are two of us. the company's bigger but there're two of us. what's going on?" "oh, you don't understand." and it was just totally different culture. and, see, wall street developed that culture. >> that's what happened, isn't it, in the -- >> yeah. no, and it happened. it happened in wall street and there's a subset of the world, that self-selects, for whom money is an overriding value. and being personally rich somehow is something they aspire to. and you know, it's a minority of the population.
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bill gates certainly did not start microsoft to become rich. nor do i think steve jobs went back to apple because he wanted to be rich. these were byproducts. they became rich, but as a byproduct. but there is a subset of the population that self-selects and they go to wall street because that's where it's somewhat legitimate. you could do the same thing illegally. and there are people who do that. i mean, there is a drug cartel and so forth and so on. but the thing that has amazed me is, a, it's fairly large. and, two, it's sort of been accepted. >> how do you explain that? >> that's one of these mind changes. i don't know. when i joined the bank, they said, "never put on the bank's balance sheet something you wouldn't sell your mother." >> is this an accurate thumbnail
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sketch of what happened over this period of time? banks took too many risks, right? >> yes, they did. but there are worse things, but they certainly did. >> what were the worse things? >> well, they originated and sold into the marketplace things that should never have been originated. >> derivatives, unregulated derivatives? >> well, it was the excess mortgages, the no-doc, low-doc mortgages. and then the derivatives were a byproduct. once you had those, then you could chop 'em up and so forth. and of course they had changed their mindset. they were in the business to make money, period. >> the exuberance, you said, took over. isn't it -- isn't democracy supposed to be a brake, b-r-a-k-e, on greed and power in the private sector? to keep the balance, to keep the exuberance from going too far, as it did in this case? >> it should. but you're a better historian than i am.
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i don't know, but i would guess the democratic systems tend to go back and forth. >> like a seesaw. >> like a seesaw. >> but when you take the watchdog off the beat, as happened in the 1990s, when you lift glass-steagall and throw it into the dustbin of history, you're removing any check in behalf of the public on the exuberance of the private sector. >> you're -- i mean, a consensus developed. the fact that we took it out was a byproduct of this mistaken belief in this modern financial system that was, quote, more efficient, was very lucrative for the united states and the u.s. economy in global terms and which was supposed to handle risk better. in fact, it handled risk worse. i mean, this is what the facts are because there was a much greater concentration of risk created.
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and so we got it wrong. but the restraint of the government and its agencies disappeared in the enthusiasm. and so it was this combination of the participants getting carried away, the normal checks and balances that should exist against participants. and the thing that is astounding, frankly, and there's a lesson here that we probably haven't yet learned, is that the system can get it so wrong. it wasn't -- >> so wrong? >> it wasn't that there was one or two or institutions that, you know, got carried away and did stupid things. it was, we all did. and then the whole system came down. you know, it became illiquid, the government stepped in. had the government not stepped in, it really would have come to
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an end. >> should the government have spent billions of dollars of taxpayer money in bailing out the banks? >> i think they had no choice. i think they had to do it, yes. >> why? >> the alternative was worse. letting the banks all collapse, which would have spread across the world, because banks lend to banks. so the interconnections were such that they just couldn't allow a meltdown of that scale. and we see in the lehman bankruptcy that we're -- i don't know how many years since but it must be three or four. and they're still unraveling the bits and pieces. and had it been the whole system, it simply would have been a calamity that from a societal point of view would have been worse. so i think they had no choice. they did have to bail them out. and they did do it. and it did succeed. >> but they left in place the very people who had driven the ship into the iceberg. >> i'm quite surprised at that. it clearly has not been a clean
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sweep. in other words, those of us who made mistakes, and so forth and so on, are still floating around the system. and -- >> floating it? you're running it. >> well, i am not, but -- >> you're not running it, they're running it. >> but there are many who are. i wasn't involved, obviously. i had retired in the year 2000. we're now talking 2008. so i was a knowledgeable spectator, but certainly not a participant. i was quite surprised because, frankly, the worst thing that can happen to a businessman is to go bankrupt. that's the sign of ultimate failure. you ran a business and it was unable to succeed under the terms and conditions of private capital. namely, you went bankrupt. it's not a crime. but it certainly is a mistake. and these companies, even though they didn't have to file for bankruptcy, de facto went
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bankrupt. and so the managements and the boards and the regulators should have, in my mind stepped aside. >> how hard was it for you to go before congress in 2010 and say, "i was wrong. i made a mistake." in fact, you said, "we created a monster." >> no, we -- look. you don't like saying this. the hard part probably preceded my testimony by two or three years, where i came to recognize and feel, and i still feel bad. and i feel bad for the people at citibank who lost jobs and so forth and so on. not to mention our stockholders. but i am a realist. i try very hard to be honest with myself, and honest in what
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i say. and facts are facts. i've seen sandy a couple times. not -- >> sandy weil. >> yeah, sandy weil. and i sort of say, "sandy, you know, we didn't do very well." and he's not comfortable with that conversation at all. i think he would still defend that it was a good merger, it just went off the tracks afterwards. i -- >> when it went off the tracks, john, you know, millions of people lost their jobs. millions of people lost their homes. millions of people saw their savings -- >> if you look at the lost product in the united states, in other words, the difference between our current economic trajectory and the potential economic trajectory, you're talking about trillions of dollars. and those dollars are jobs and output and so forth and on so. i mean, we over leveraged. and that was because we were creating mortgages so as to sell them into the market.
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and we're creating them from customers who probably should not have been borrowing. they didn't know what they were originating, didn't know who was buying it, and they didn't care. they were getting paid commissions along the way. and that's a fundamentally flawed system. if you say to a businessman, "what is your objective?" and he says, "my objective is to make money," there are no boundaries on that. i mean, it's only the law as to what you do in the middle. it would be better if you said, "i'm in business to serve my customers," or "to create a product like an ipad or what have you." but something that has intrinsic value. and all of a sudden, we changed to, "hey, i'm not totally sure
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what we're doing here. maybe it's not right. but you know what, i'm getting paid my commission." and that mindset took over. and a lot of that money did flow into the political coffers. there's no question -- >> what do you mean? >> donations. you know, if you're rolling in money in a business, it's very easy for you to have a pac and to contribute to campaigns and so forth and so on. and we went through a period of time when there was an immense amount of money. i don't mean small. i mean, we took -- this is the biggest economy in the world. and we went from 15% to 25% of the economy. >> the financial community did? >> the financial -- >> industry. >> the financial sector, yeah. but the point is our government is designed fundamentally to be dumb but to listen. in other words, no one is elected to the government because of their personal expertise in the various issues that they're going to have to deal with. we have a system that is designed to listen. >> but if money gets you greater
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access -- >> but unfortunately the talk of what you're listening to gets distorted by the money issue. they're not randomly listening to the population at large. they're listening to people who have a strong voice, because they're strong contributors and so forth and so on. >> i think you've taken us to a very fundamental issues that's roiling the country at the moment. and it is that this is an -- democracy is no longer a level playing field or even approximately a level playing field. the big institutions have so much money that they can flood into the system. there's one study i saw just the other day that reports the number of people lobbying today on behalf of the financial industry to try to weaken dodd-frank, the bill passed after the disaster, outnumbers consumer, union, and other groups by a ratio of 25 to 1. the financial industry outspending everybody else 25 to 1 to try to weaken dodd-frank.
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>> i'm quite surprised that the political establishment would listen to groups that have been so discredited. >> you're saying despite what happened in 2008, wall street still has too much power? >> they have too much voice. they certainly are being listened to. i find it incredible. i would have guessed that society, at large, would have said, "hey, we made a mistake. let's get some rules." you know? i used to tell my kids, "why do you think a car has brakes?" and they all would say, "to stop." and i'd say, "no, a car has brakes so that you can drive fast. if you got into a car that had no brakes and you knew it, how fast do you think you would drive? you wouldn't drive very fast at all." and that's the same reason we have rules. you want the private sector to be free to be creative and exuberant and whatever, within a
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framework, okay? >> you testified in front of the senate banking committee, you came out in support of what we call the volcker rule. for the layman, what is the volcker rule and why do you support it? >> the rule simply says, "if you have a customer who wants to issue a bond, you could help him. but you can't trade in the bond market for your own account." and so what the rule does is it basically puts the banks back into the customer business and allows the wall street community to be in the pure trading and the business of speculation and hedge funds and so forth. and it separates those. >> sounds to me like you're calling the glass-steagall act back from the grave. >> i think i am. >> because? >> i just think it's better that we have that barrier than not. it makes sure that the fdic guarantee doesn't provide a funding base for proprietary trading activities. remember, the government
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guarantees your savings account and mine in the local bank. and, correctly, we don't want the government's guarantee for those accounts to act as a funding base for somebody who's speculating in the market. and so it's that kind of separation. it's a prudent barrier. and i'm astounded that anybody would be against it. and mind you, i'm a private sector guy. i'm not suggesting over government intervention. but you need rules. i would never let you or a friend or my kids drive a car without brakes. >> but when the financial community can buy the rules they want -- >> then you've got an unstable situation. that's an intolerable situation. i mean, obviously. >> so do you have any sympathy for occupy wall street, the movement that has in a very inchoate, but nonetheless, persistent way, been out across the country, trying to get us to pay attention? >> yeah, no, i definitely do. i mean, i think it's symptomatic of the disconnect that exists in
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our discourse now. where you have a set of folks who seem not to understand fully what went on and the implications of it. and a political establishment that doesn't seem to respond very well. they know a lot about the concerns, but they seem not to be able to do anything about them. and the folks in the financial system are not listening. they're not saying, you know what, there's some correctness in these views. and so i think these people are giving voice to a frustration. and i am quite understanding of it. i hope the political establishment has some ears. i understand the political divisions. but they've got to start understanding that at some point you have got to come together. >> john, thank you very much. >> thank you. i've enjoyed it.
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>> john reed and many others say they were taken by surprise when the country's biggest financial institutions went bust in 2008. but it wasn't as if they hadn't been warned. >> i believe that when this legislation is enacted -- >> remember byron dorgan? he sounded the alarm about the dangers of striking down glass-steagall. but his concerns were dismissed by wall street, by the clinton white house and most of his own colleagues in congress. but on the day of the vote, the senator from north dakota gave one of the most prescient speeches in our political history. >> i worry very much that the fusing together of the idea of banking which requires not just safety and soundness to be successful but the perception of safety and soundness. to merge it with inherently risky speculative activity, is
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in my judgment unwise. i think we will in ten years' time look back and say we should not have done that. >> ten years later, 2008, your prophecy came true. our financial system came crashing down, and taxpayers, as you had predicted, had to bail out the banks, just as you said we would. you take any pleasure out of being right? >> no, i mean, there's no pleasure in this country for what happened, no pleasure for me to see. i mean, in many ways, it isn't, kind of, an irony that ten years after i predicted that ten years we might see massive bailouts, it happened. i didn't know that, but i just expected that we were creating real trouble for this country, really big trouble. >> what did you know that no one else knew? >> i don't know that i knew something. i felt something very important
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about all of this. you know, i had read what went on in the great depression, kind of understood what caused a collapse back then, and the unbelievable heartbreak and pain for this country. closing of the banks and people losing their jobs and losing hope and so on. well, we put together a remedy as a result of what had caused the great depression, the speculation, the orgy of greed and so on, on wall street. the remedy was glass-steagall and other protections that said we're going to separate banking from the more risky enterprises -- real estate, securities, insurance. and so, we're not going to let this happen again. and that legislation was passed. and it lasted for, what, 70 years or so, and worked well for this country. and then, all of a sudden, what happened with this shift politically where those that had capital in this country, wall street and others -- had a profound influence on the
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political class, and said, you know what, we want to change this in our interests. we want to get rid of glass-steagall. let's throw aside these barriers because we want to do what we want to do. and they just caused an avalanche of effort here in congress to decide we've got to get rid of glass-steagall. it's old-fashioned. it hurts america and so on. >> that's a great term for it. how did they create an avalanche here in washington? >> first of all, they have a lot of money. and they're interested in their own financial interests. and so, when they weigh in on something like repealing glass-steagall, they have money to advertise. they have money to persuade. they have money to get grass roots support. it became, kind of, a circus in the sense that this was not thoughtful. this wasn't a bunch of people in a room with the best minds in the country thinking what might be the consequences of doing this? if we really thought through what the consequences might be, having gone through a great
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depression once as a result of banks fused with risky ventures? i don't think it ever became a moment in which really good people sat down and evaluated what are the consequences of this. and one of the reasons for it is the green lights that were signaling at these intersections from the president, secretary of the treasury. key people in congress were saying, "let's do this, let's do this, let's do this, because it will be good for the country." and it became a chorus of voices from all sides raise in support of repealing glass-steagall because it was old fashioned, no longer needed. it was necessary to be repealed so that we could be competitive with the european banks. of course, that was all nonsense. all complete nonsense, but they swallowed it hook, line and sinker. and everybody marched right off a cliff and repealed glass-steagall. and here we went, you know, we headed right towards an economic disaster. >> it had this fancy name. the financial services
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modernization act, but it's real purpose was to kill these banking protections, right? >> oh, sure. this country's been modernized before by special interests that wanted to get a bigger slice of the pie for themselves. but no matter what they called it here, the modernization act, this was the biggest financial interests of the country trying to grab more money for themselves. they didn't like -- they chafed under regulations. they didn't like regulations. and they were busy creating all kinds of exotic instruments and, you know, credit default swaps, cdos, i mean, the whole -- the list is endless, and making very big fees, getting unbelievably wealthy doing it, and injuring this country and putting us in the position where we almost saw a complete collapse of the american economy, through the greatest amount of greed, i think, perhaps in the history of the country. and there's bipartisan responsibility for it. alan greenspan bears a
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significant part of the responsibility, i should say because he sat and watched it all on his hands when he had supervisory responsibility over the investment banks. but the congress, the president-- what this country did was unthinkable. >> as he signed the bill, president clinton handed the first pen to free market republican phil gramm of texas, who had worked long and hard to eliminate glass-steagall. it was later reported that another pen went to sandy weill at citigroup. >> somebody ought to track that pen down and destroy it. there's no honor in what that pen did. i think if you were to rank big mistakes in the history of this country, that was one of the bigger ones because it set back this country in a very significant way and caused so much heartbreak and heartache and a near total collapse of the american economy. and it's not surprising what happened when we decided to eliminate the rules and provide a green light to say, do whatever you want to do.
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it doesn't -- it just shouldn't have been surprising then, and it's not surprising to me now that we had a whole lot of interests that, you know, made this look like a bunch of hogs at a slop pail, you know, grunting and shoving to see who could get richer quicker. and that was at the expense of the american people. >> you said in that speech on the floor that choruses of folks, choirs standing outside the senate chamber spent their lifetime working to get this done. who was singing in those choirs? >> well, it's interesting, you know. it always starts with soloists, but then that music is joined by a lot of people. and, you know, it was who's who in the financial industry sector saying, "we want all the rules to be gone." it's very much like what we're hearing today. i heard it this morning on the radio, the biggest problem in this country they say is regulation. really?
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what kind of regulation? they now, you know, all of the mantra with the republican candidates running for president, we've got to get rid of regulation, got to get rid -- i'm very surprised in the shadow of what happened when we most recently got rid of regulation, i'm very surprised anybody has the willingness to say that publically, and yet they do. it's unfathomable to me, bill, that all of this happened under our noses. so, regulators, members of congress who were supposed to know what was happening, and who, if they knew, would believe it was okay -- does anybody really, really believe that it is okay for financial institutions in this country to trade tens and tens and tens of trillions of dollars of credit default swaps in which they have no insurable interest on either side, just making wagers, casino wagers? >> but, at least in casinos they have bright lights so you can see what they're doing. you know, i mean, these financial institutions at wall street, you didn't see any spotlights inside of those
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institutions, so that all of us could see what was happening. >> you warned in that speech that if we took this direction, encouraging, allowing mergers and conglomerations, it would create institutions too big to fail. >> right. that's exactly what happened. and sadly, even though there were institutions too big to fail that had become bigger since the repeal of glass-steagall, now, they're even larger as a result of the bailouts, and we still have a too big to fail doctrine because those big financial institutions -- and by the way, they are still gambling today, it isn't shut down. so, they are bigger than ever. i tried to pass some legislation in dodd-frank that says if you are too big to fail, you're too damn big, and you should be broken up. i tried to pass legislation to say it shall be illegal to have naked credit default swaps.
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you've got to have an insurable interest. couldn't get either passed. >> you're talking about dodd-frank passed after the 2008 crash to try to prevent it from happening again, and you're saying it's too weak to prevent another collapse. >> it is. yeah, i mean dodd-frank passed with my vote because it does some good things and moves in the right direction, but it is timid. it doesn't -- if you were going to address the real causes here, you would decide that too big to fail cannot be tolerated. if you're too big to fail, we need to be slicing away at those enterprises and bring them back down to size. and i hope that congress will begin doing that at some point. >> but you don't expect it will really. even as we speak, capitol hill, over your shoulder there, is swarming with lobbyists from wall street trying to weaken further an already weakened bill, right? >> absolutely. and as you know, very quickly wall street was made whole. it's just the folks at the other
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end of the economic ladder that still bear the consequences of this near collapse. >> no matter how we slice the numbers, it's a fact that since 1979, 40% of the income growth in this country has gone to 1% of the population. and so, that you can hear it said, that we now have government of the 1%, by the 1%, for the 1%. what do you think about that? >> well, the interesting thing to me about it is that it's not accidental. i mean, this has happened as a matter of public policy, in some cases, very deliberate policy that creates a tax code that says the wealthier you are, the less you pay in income taxes. and the more income you have as a result of netting out your tax payments. whereas on the other side, the lower income you are the higher your burden. well, that's a deliberate policy that says we're not going to have a fair system at all. we're going to weight it favor of the wealthy. now, how does that happen?
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it happens because those who are at the top of the income ladder have enormous clout. they have the ability to hire people and have their will in this debate on public policy. and all the rest of those folks, they don't have anybody that they've hired to say, "look after my interests." and i think history shows that in every country where you have an unbelievable mal-distribution of income, where you have just a few that are very, very, very wealthy, and then, a lot of others who don't have very much, that's not a recipe for having economic growth and opportunity and expansion for all people. just, you know, we know what that causes. so, when we see this growing inequality of income, it means our country's headed towards a future in which we won't have the same opportunity generally for the american people that we've experienced in the past. >> senator, i appreciate very much your giving me your time this morning. >> well, thank you very much, bill.
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>> it is practically impossible to describe the extent to which our country's been changed by all this political and financial cronyism. nonetheless, we'll be returning to this issue -- so critical to our future existence as a democracy -- in the weeks and months ahead. just as a reminder -- let's take another look at the chart we used in our first broadcast. jacob hacker explains. >> it says how much did people at different points on the income ladder earn in 1979 and how much did they earn in 2006 after adjusting for inflation? it exploded at the top. the line for the top 1%, it's hard to fit on the graph because it's so much out of proportion to the increases that occurred among other income groups including people who are just below the top 1%. so, that top 1% saw its real incomes increase by over 250% between 1979 and 2006.
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yeah. over 250%. >> behind that chart is a deep rot that permeates our system. after you finish "winner take all politics" read this one by peter schweizer -- "throw them all out: how politicians and their friends get rich off insider stock tips, land deals, and cronyism that would send the rest of us to prison." peter schweizer is a fellow at stanford university's hoover institution, a conservative think tank, and he's just as outraged as the tea party and occupy wall streeters are at corruption hidden in plain sight. he begins his book quoting the notorious george washington plunkitt, who got rich as a new york city party boss at tammany hall in the 1870s: "there is so much honest graft in this big town that they would be fools to go in for dishonest graft." washington today. which makes me want you to hear a call left on our answering
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machine after last week's show, when we reported on how the influence of wall street bankers has played out in the obama white house. listen. >> i do not understand why you did not include the fact that ubs was fined $780 million by this administration. surely, you do not want to have people vote republican or for a third party, which will only enable the republicans to get elected. i am appalled, frankly, at your last segment which did nothing, i don't think, in fairness to this administration. >> we were grateful for the call. we like to hear from all of our viewers. but i'm afraid she misses the point. it's not our role as journalists to help elect the candidate you like, or defeat the one you don't like. our job is to help you see what you may have missed. there's always more than meets
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the eye. so keep that in mind throughout this election year. we'll leave the horserace mostly to others, while we do our best to throw some light on what's really at stake. next week we move on to how conservatives and liberals see the world differently, and why. >> when it gets so that your opponents are not just people you disagree with, but when it gets to the mental state in which i am fighting for good, and you are fighting for evil, it's very difficult to compromise. compromise becomes a dirty word. >> meanwhile, go to our website you'll see a letter there from congressman barney frank, ranking member of the house financial services committee. he responds to some of the things that were said last week about his namesake financial reform bill, dodd-frank. "new york times" reporter gretchen morgenson who was with me for that discussion, responds on the website. you also can take a look at our new money and politics page.
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there's some superb reporting there as well as interactive tools from our colleagues who connect the dots and follow the money. that's all at see you there and see you here, next time. ♪ >> announcer: got a question for bill? bring it with you to send it in and see some recent answers. this episode of moyers and company is available on dvd for $19.95. to order, call 1-800-336-9117 or write to the address on your screen. funding is provided by
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